Advantages Disadvantages Franchising

Marketing Support

A franchise company has spent years establishing a brand name and finding effective marketing programs. As a franchise owner, you would have the benefit of using that experience to help your business grow. The franchise company spends the money on market research, and you as a franchise owner would be able to apply that information to your marketplace and increase your revenue.

Business Methods

A franchise is based on the concept of taking a proven business method, and then applying that to multiple locations. For example, a franchise can be based on a way to cook a hamburger that has already generated significant revenue. As a franchise owner, you do not need to develop a successful business method. You only need to apply the franchise business method to your business to begin generating revenue.

Territorial Protection

In most cases, a franchise will offer a franchise owner a territory to work. That territory will be the only market of that franchise owner, and the franchise owner will not have to worry about the company setting up another location within his territory. A territory is normally set by geographic boundaries and varies depending on the franchise company. The franchise owner still will have competition from other companies, but he will have the support of his franchise company within his territory to help improve his chances of success. Before signing a franchise agreement, discuss territory protection with the franchise company.

Disadvantages:

Lack of Flexibility

With a franchise agreement, the franchise owner is told how to run his business, how to lay out his location, what vendors to use, how to train his employees and in some cases what hours his location needs to be open. Because the franchise company has a set way of doing business, this means that the franchise owner doesn’t have the freedom to run his business as he pleases.

Company Image

Your franchise location image is tied to the image of the franchise company. If the company experiences a financial or product-related scandal, your franchise will experience lost revenue just as other franchises will. In some cases, your business can lose money for elements that are out of your control.

Franchise Fees

Fees required to start a franchise can be expensive. On top of location costs, labor costs and the cost of supplies, there is also the cost of the franchise license and the ongoing percentage that the franchise takes either monthly or quarterly. The hotel industry charges the highest average initial franchise fees. An average hotel franchise, including licensing and location fees, can cost as much as $6 million to start, according to Bond’s Franchise Guide. The average franchise royalty fee per month for any kind of franchise can run from 3-8 percent of total monthly sales, according to the website Franchise Prospector.

Whenever we are venturing out, we always have to weigh in advantages disadvantages especially in franchising.